I’ve been having a running debate with Henry Blodget in the comments section of this Alley Insider post on their effort to create a list of the "World’s 25 Most Valuable Startups". I think these lists are dumb (including the SA100 which was an attempt to list the "players" on the internet scene in NYC).

But beyond my distaste for page view driven list making, I also think the idea of trying to determine the most valuable startups is an exercise in futility. Yes, it’s clear that Skype, YouTube, Facebook created a lot of value for their founders and investors. We can state that with certainty. But look at the list of companies they are considering for the "SA25". I haven’t heard of some of them and it’s my business to know about companies like this.

Here’s what is certain, many of the companies they put on their SA25 list will be busts. Many of the companies that don’t make the list will create hundreds of millions if not billions for their founders and investors.

Josh Kopelman hit the nail on the head with these three words "I Don’t Know". Henry asked me to nominate some of my companies. So I nominated all of them. I have no idea which ones will make us a lot of money and which ones won’t. I hope they all succeed and we are working to help them do just that.

If you had asked me back in 1999 which Flatiron companies would be the most valuable at this point, I certainly would not have picked Mercado Libre. Our whole foray into latin america was turning into a disaster and Mercado Libre had a seriously tough competitor in Deremate. But here we are, MELI is worth $1.6bn. At the very same time, The Industry Standard looked like a sure thing. It was the "bible" of the Internet mania and there were so many ad pages in it, it was heavy to lift a copy. And a year and a half later, it was out of business.

Uncertainty is the hallmark of the venture capital business. If you think you know what’s going to happen, you are wrong. The best you can do is be directionally correct about where things are headed, try to back as many good teams as you can find going in that direction, and help them weave and bob there way to creating successful companies.  And most of all, do not ever count your chickens before they hatch.

#VC & Technology

Comments (Archived):

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  2. Henry Blodget

    Fred, no getting away from uncertainty. And no way to avoid being completely wrong. But I have to believe you have some feeling about which of your companies could hit a billion+ home run versus the ones likely to yield a nice, acceptable return. And I also have to believe that you think the market is missing the real story on a lot of your companies–or you wouldn’t have been able to get in at a price that left room for a great return.Twitter, for example. I talk to savvy folks every day who think it’s not just a fad but a fad without a business (a.k.a., worthless). Given the rate at which the brand is gaining traction, however, I wouldn’t be surprised if it’s a huge home run.Going through the exercise of thinking through what the market is or isn’t missing, I think, is worthwhile, interesting, and fun–even if you’re wrong a lot. And, yes, the exercise also does generate some pageviews. (Though I would argue not for silly reasons: folks are actually interested–including me).Happy to report that some USV companies have made the final SAI 25 list–not that you care, of course : ) .

    1. fredwilson

      Twitter may well be a home run. But it’s certainly not clear that it will beBut it’s certainly the one that everyone talks about.What about indeed? Not on your list. Certainly the most valuable company inour portfolio right now. But nobody knows it because nobody talks aboutindeed and the founders don’t spend time on PR, just building their userbase and revenues and profits.I don’t see Zynga on your list. Certainly the second most valuable companyin our portfolio right now. Not based on hype. Based on it’s results.Financial results.And what about Bug Labs? How can you ignore them? If they get their modelright, they could be the most valuable one of them all.But as sure as I am that those three companies deserve to be on your list, Iam also sure that one of the other companies in our portfolio will be morevaluable than all of them.It’s just mental masturbationfred

      1. bfeld

        Yes, but real masturbation is a lot more satisfying. Lists like this (and people’s fascination with them) are always a counter-indicator to me.

  3. Henry Blodget

    Interesting–I had a long chat with someone intimately familiar with your portfolio and indeed and zynga didn’t come up. Which isn’t to say they aren’t worth a lot–I’m just glad to hear that they’re also exciting. I’d love to hear details on why.And that’s part of what this is about: Not everyone has as much insight into the metrics of private companies as VCs. I’m glad to have gone through the exercise–I’ve learned a ton about a lot of exciting companies. I hope some readers will feel the same way (even some VCs!).If nothing else, the SAI 25 should make for good conversation–which I think we both at least agree is part of what this whole blogging thing is all about.(It won’t generate as much conversation as our spring list, though. THAT one’s going to be a humdinger of a conversation-starter.).

  4. Daniel Ek

    “The best you can do is be directionally correct about where things are headed …”, out of curiosity it would be interesting to read what themes you’re betting on at the moment.

    1. fredwilson

      Good subject for a blog post. But if I do it, it will be on the union squareventures blog. I’ll start working on itThanks for the inspiration

      1. scott crawford

        This could be a fun, informative read on a semi-annual basis; a journal of sorts.

      2. Eben Thurston

        Fred, I agree with Daniel.I’d love to hear more of your thoughts on the notion that “The best you can do is be directionally correct about where things are headed.” That really is the secret to this startup technology business. If we all sat around waiting for the perfect idea we would never take action.

  5. Eaken

    why don’t we make an uncertain future 100 list and put Henry at the top of it

  6. howardlindzon

    not one porn site. always getting dissed yet likely all the most profitable.

  7. Kyle S

    Maybe this is just me being paranoid, but this whole thing sure smells like Henry attempting to get non-public financial info on top VC-backed companies. It seems fairly ridiculous to not include companies like facebook and zillow on this list (even with the caveat that 5 companies have “already been selected”). when zillow’s CFO complained, he was told to send financial data.I dunno. There’s just something fishy about this. Henry’s post just has a lot of characteristics of classic “troll” behavior.

    1. fakedjs

      In this game, all believing is betting. Facebook is still losing money.

  8. vruz

    there’s a big difference between confidence and certainty.one has to have the confidence to go ahead and do one’s best to make an informed guess what a market scenario will be like.absolute certainty is a sure recipe for failure.

  9. Guest

    “Skype, YouTube, Facebook created a lot of value for their founders and investors.”True… From your vantage point this may be irrelevant, but it is far from clear what these three did for EBAY, GOOG and MSFT respectively. In fact we know Skype cost E-Bay shareholders more than $1B in equity write-offs, as almost everyone predicted back in 2005. Now there is a rumor that Meg Whitman is groomed as a Treasury Sec in a future McCain Administration, which brought down my resepct for the guy by at least two orders of magnitude. Is this the type of fidicuary responsibility and fiscal prudence that the U.S. Treasury needs?With respect to the other two, it still unclear what type of copyright liability YT carries, and it is obvious to everyone that MSFT’s valuation of FB was in the realm of “ridiculous”.Next we have to see what kind of “value” will be created in the biofuels sector…

    1. fredwilson

      Skype was worth a lot, just not to eBay. It was the wrong buyer. Imaginewhat Vodaphone could have done with it if they wanted to really shake thingsup.I think YouTube will turn out to be another brilliant move by Google. Theyhave the balance sheet to fight the IP issues and win. And YouTube iscurrently serving about half of all the web video right now. I bet thatnumber grows.Facebook isn’t worth $15bn, but it’s certainly worth $5bn, maybe $7bn.That’s more than Skype and YouTube combined.Fred

      1. WayneMulligan

        Wow, you just gave Facebook a 35 x revenue multiple. For a site that’s shown a clear inability to effectively monetize that traffic, that’s a mighty rich number. Sure they have the opportunity to monetize with that type of scale, but with Google out-innovating them at every turn, I’d be a bit nervous about trying to put a valuation on a company like that.

  10. Antman

    Fred, kickin’ post. I find prognostication or speculation fascinating. What would be a “better” list is one that compares this list to last years and then next years to this years. Maybe even go back 2 or 3 years and compare to todays. It would give us context to what “influenced” the thinking. What were the themes, what biases could be ferreted out, then we could see if they were being repeated.The value is in the comparison. Our ability to assess is hampered, as much as it is helped, by the “here and now.” We don’t know what we don’t know. I collect antique books, and I have one written in the 50’s, (for the life of me I can’t find it) it was a book on predictions of what the world would be like in 50 years. They talked about everyone having their own helicopter to cruise around town, but no, I mean NO mention of a computer never mind a personal computer or the internet. Our ability to guess what is going to be popular, what is valuable, who/what will succeed is nothing more than a good guess shaped by our culture norms, biases, emotions and desire to be RIGHT! I like your approach of hitchin’ ya train to a direction. Hmmmm, good stategy!